Case Study
Medical Office
$4,000,000 purchase (less land) · 15,000 sq ft
- 5-year
- $600,00015%
- 15-year
- $800,00020%
- 39-year
- $2,600,00065%
Accelerated 35% of project depreciation.
ENGINEERING-BASED DEPRECIATION
Do you qualify for cost segregation?
Our cost segregation program gives you and your tax professional everything needed to optimize depreciation on property you already own — the study, the workpapers, and the defense if it is ever examined.
★ WHAT IS COST SEGREGATION?
A building isn’t one asset. The tax code knows that.
By default, commercial property is depreciated over 39 years and residential rental property over 27½. But a building is not a monolith — it contains carpeting, cabinetry, specialty electrical, dedicated plumbing, site improvements, landscaping and paving, much of which the code allows to be recovered over 5, 7 or 15 years.
A cost segregation study breaks a project into its individual asset components and assigns each to its correct recovery period. Your total depreciation does not change. Its timing changes — and timing is money, because deductions taken now are worth materially more than the same deductions taken across three decades.
5-year
Carpet, cabinetry, dedicated equipment power, decorative finishes
15-year
Paving, site utilities, landscaping, exterior lighting
27½ / 39-year
The structure itself — walls, roof, foundation, core systems
★ REAL ALLOCATIONS
What a study actually reclassifies.
Three completed AIA studies, with the depreciation allocation as delivered. Results depend entirely on the property — these are illustrations of method, not a promise of outcome.
Case Study
Restaurant
$1,800,000 purchase (less land) · 1,400 sq ft
- 5-year
- $1,200,00070%
- 15-year
- $270,00015%
- 39-year
- $270,00015%
Accelerated 85% of project depreciation with bonus QIP depreciation.
Case Study
Office Building
$50,000,000 purchase (less land) · 70,000 sq ft
- 5-year
- $2,500,0005%
- 15-year
- $7,500,00015%
- 39-year
- $40,000,00080%
Accelerated 20% of project depreciation with additional bonus depreciation.
Allocation figures are drawn from completed AIA studies. Your outcome depends on property type, cost basis, placed-in-service date and the components actually present.
Where it came from
Cost segregation traces to the Tax Reform Act of 1986 and gained prominence in the late 1990s through a series of legal precedents that established component-based depreciation.
Background
Subsequent IRS guidance and the American Jobs Creation Act of 2004 expanded the scope. The 2017 tax act changed depreciation rules again, and bonus depreciation provisions have continued to move since.
How a study is performed
Engineering-based, not a rule of thumb. Specialists review construction documents, cost records and the property itself, then allocate cost to each component with documented methodology.
Method
This is the approach IRS guidance describes as the most defensible. Residual or estimate-only methods are cheaper to produce and considerably weaker under examination.
What you receive
A complete study, change-of-accounting-methodology workpapers prepared by in-house CPAs, and workpapers in CSV covering federal, AMT and state basis.
Deliverables
Audit defense is included in the engagement in the event of an examination — we hold the file and we stand behind the methodology.
★ WHO SHOULD BE LOOKING AT THIS
Billions get reinvested into buildings and then depreciated on autopilot.
Every year, business owners put substantial capital into structures, renovations and build-outs. Left on the default schedule, that capital produces the smallest possible deduction in the years when cash flow matters most. That is not a loophole being missed — it is a tool going unused.
- Purchased a commercial building
- Built new construction
- Completed a renovation or expansion
- Funded a tenant or leasehold build-out
- Own rental residential property
- Acquired property in a prior year and never studied it
★ FREQUENTLY ASKED
Cost segregation, without the sales pitch.
No — and any firm telling you otherwise is misleading you. The total depreciation over the life of the property is the same. A study accelerates it, moving deductions into earlier years where they are worth more because a dollar today is worth more than a dollar in year thirty-two.
Commercial buildings, rental residential property, renovations, tenant build-outs and leasehold improvements. Purchases, new construction and substantial improvements can all be studied, and property acquired in prior years can often be addressed through a change in accounting method rather than an amended return.
There is no statutory floor, but the economics matter. We look at the purchase price less land, the property type and the components likely to reclassify, then tell you whether a study makes financial sense. If it does not, we say so.
Cost segregation and bonus depreciation compound. A study identifies the shorter-life property; bonus depreciation determines how much of that shorter-life property can be written off immediately. The pairing is where most of the first-year benefit comes from.
A complete engineering-based study drafted by industry specialists, change-of-accounting-method workpapers prepared by in-house CPAs, workpapers in CSV covering federal, AMT and state basis, and audit defense if the return is examined.
Often yes. A look-back study on property already in service can generally be handled through a change in accounting method, which catches up the missed depreciation in the current year rather than requiring amended returns for each prior year.
★ NO-COST PROPERTY ASSESSMENT
Tell us about the property. We’ll tell you if a study pays.
A short conversation about basis, type and placed-in-service date is usually enough to know whether this is worth pursuing.